Applied for a PPP Loan? Simple Steps Now to Avoid Government Scrutiny Later - Updated as of May 6, 2020

Reminder as of May 6, 2020

Businesses that applied for a Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan have a chance to change their minds if they return the money by May 14, 2020.

With the onslaught of COVID-19 business closures, the government invited businesses around the country to apply for CARES Act relief to help survive the closures. Many have chosen to apply for assistance through the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). Now, businesses that applied for a PPP loan have a chance to change their minds if they return the money by May 14, 2020. Specifically, on April 24, 2020, the SBA:

Acknowledged some aspects of the PPP loan application process were confusing;

Established a “limited safe harbor” for return of the money so that any “borrower that applied for a PPP loan prior to the issuance of this [April 24] regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”

On May 5, 2020, the SBA issued FAQ 43 extending the limited safe harbor to May 14, 2020 and stating that the “SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.” We will provide an update once the SBA issues the referenced additional guidance.

Additionally, on April 29, 2020, the SBA issued FAQ 39, in which the SBA determined “that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.” The SBA stated that it will be issuing additional guidance implementing this procedure.

If you applied for a PPP loan but now wonder if you made the right decision, here are four things to do today to reduce the chance of becoming the target of an expensive and disconcerting federal investigation later:

1. Check again to be sure you qualify

Take time now to re-scrutinize your application in light of the revised FAQs and the new Interim Final Rule to confirm your eligibility for a PPP loan. The new SBA guidance highlights that applicants must assess “their ability to access other sources of liquidity sufficient to support their ongoing operations” as part of the certification before attesting to eligibility to receive PPP funds. For example, although some public companies applied for PPP loans, the SBA opined it is “unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.” The SBA also expressly stated that venture capital and private equity firms are ineligible for PPP loans, but their portfolio companies may still be eligible, provided they satisfy PPP criteria, taking into account the affiliation rules, and the certification that they have a good faith basis to assert the funds are “necessary to support the ongoing operations” of the applicant.

In light of this guidance, businesses with pending applications, whose applications have been approved, and even those with funded loans, should re-scrutinize their eligibility. Signing a recklessly false certification may trigger later civil and criminal government investigations, thus each applicant should pause for a moment, carefully re-review the eligibility criteria, the certifications in its application, and the new SBA guidance. You should also ask someone else to double check the contents of the application, and – most importantly – ensure that the application certifications and other information provided tell the whole truth about your business.

2. Return The Money By May 14, 2020

If you decide you do not qualify or you do not want to risk scrutiny, the SBA has provided all recipients with a “limited safe harbor” period to return PPP money if done by May 14, 2020. If you meet the return deadline, the SBA will deem your application to have been made in “good faith.” This finding does not bind the DOJ, the SEC, or any other federal agency that may want to investigate the loan application, but it likely will reduce the heat around an improper application and will bind the SBA.

3. How To Return The Money

Do not write a long explanation of how the requirements confused you. If you are withdrawing your application, turning down funds, or paying back the loan in short order, usually the less you say, the better the outcome. Let your actions speak for your intentions. There are various neutral reasons a recipient may decide to decline or return a PPP loan.

4. Keep A “Reliance” File

Do not forgot to document and save your “reliance” file. Gather all articles, FAQs, internet searches, PDF guidance, advice, notes, emails, drafts, and other materials you relied on to prepare your loan application. Having accepted the funds, you have a second chance to go through the same process you did before you submitted your application, and before May 14, 2020 (the end of the “limited safe harbor” period). These pre-decision resource materials are useful contemporaneous evidence to help explain what you understood at the time you applied for the loan and what you understood as you consider refunding it. It can also help you remember years later if an issue arises.

The PPP rules, requirements and guidance are less than perfect. Recklessly disregarding CARES requirements can trigger treble damages, bring scrutiny from various agencies, and trigger a criminal investigation. Take time now to give your application and satisfaction of the eligibility criteria a second, careful examination to be sure you want to pursue a PPP loan and/or keep the money already received.

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